TORONTO—Low corporate tax rates combined with moderate statutory labour costs low goods and services tax/harmonized sales tax have helped Canada keep it’s spot as the most tax competitive country for business globally, according to KPMG’s biennial Competitive Alternatives 2016: Focus on Tax report.
The United Kingdom ranked second with the Netherlands taking third place in terms of tax competitiveness.
The report assesses the tax competitiveness of 111 cities in 10 countries featured in the Competitive Alternatives study KPMG released earlier this year. The supplementary report also focuses on tax comparisons for 51 major international cities.
“This year’s Focus on Tax report reinforces Canada’s position as an attractive option for businesses looking to relocate and expand their operations,” said Jodi Kelleher, National Leader, International Tax, KPMG. “As our economy continues to rebound, this provides more positive news for the provinces and cities featured in the study.”
The study says all 17 of the featured Canadian cities have lower total effective tax costs when compared to all US cities featured. During the study period (based on tax rates effective/announced as of January 1, 2016), St. John, NFLD emerged as the most tax competitive city in Canada followed by Fredericton, N.B. and Moncton, N.B.
Toronto, Vancouver and Montreal held three of the top four spots among the 51 major international cities (with a population of two million or more) ranking first, second and fourth, respectively. Manchester, U.K. placed third.
How Canada ranks
KPMG says Canada’s federal corporate income tax rate of 15 per cent provides a very competitive base for corporate tax, even when combined with provincial rates, which typically range from 10 to 15 per cent. In comparison, the U.S. federal corporate income tax rate is approximately 34 per cent.
Among other corporate taxes, Canada’s GST and HST sales taxes, which are generally refundable to businesses after Input Tax Credits are claimed, result in lower tax costs than the non-refundable sales taxes that apply in most U.S. states. (Non-refundable sales taxes also apply to British Columbia, Saskatchewan and Manitoba.)
Statutory Labour Costs, income thresholds for CPP and EI (at approximately $51,000) result in low statutory plan costs for Canada relative to many other countries.
Canadian cities’ highlights
St. John’s ranks 1st overall among 17 Canadian cities, moving up from 4th in 2014. The introduction of a new tax credit in 2015 for digital media activities in Newfoundland & Labrador boosted the city’s placement in the study. (Note: This analysis is based on tax data as of January 1, 2016 for all featured countries and cities and does not reflect tax changes announced by Newfoundland & Labrador in its April 2016 budget.)
Toronto ranks 1st among the 51 major international cities studied and 10th overall among the 17 Canadian cities. The Ontario digital media tax credit has a significant impact on the results for Toronto in the Digital Services sector and also contributes to the city’s overall positive ranking.
Vancouver ranks 2nd among the 51 major international cities studied and 12th overall among the 17 Canadian cities. British Columbia’s R&D tax credit (10 per cent) and digital media tax credit (17.5 per cent) have a significant impact on the results for Vancouver in those sectors, and contribute to Vancouver’s overall positive ranking.
Montreal ranks 4th among the 51 major international cities studied and 17th overall among the 17 Canadian cities. The range of tax incentives included in this study for Montreal such as R&D, e-commerce, digital media production, international financial activities and manufacturing contributed to the city’s relatively low tax costs compared to its global peers.
How it’s calculated
Total tax costs are compared between countries and cities using a Total Tax Index (TTI) for each location. The TTI is a measure of the total taxes paid by companies in a particular location, expressed as a percentage of total taxes paid by similar firms in the U.S. As the benchmark country, the U.S. has a TTI of 100.0. This study also defines a second measure of total taxes, which expresses tax costs as an effective rate, rather than an index of taxes actually paid. This measure is the Total Effective Tax Rate (TETR), which is calculated as: Total taxes paid by a corporation divided by Standardized net income before income tax.